A few weeks ago New York City’s Rent Guidelines Board voted for its recommend range of rent increases permitted in the city’s million or so “rent stabilized” apartments for the year beginning October 1st. What everyone’s waiting for is the circus where the final decision is made; this year’s entertainment begins at 6:00 PM on June 23rd in the Great Hall at Cooper Union.

Meanwhile, time and money get wasted over at the Ansonia, a grand old Upper West Side building. Marieliz Unwin has occupied a rent controlled turreted one-bedroom there since 1978. Her landlord is now three and a half years into an eviction suit, claiming Ms. Unwin actually lives in a farmhouse upstate and only uses the apartment for commercial purposes, for which she would not be entitled to protection under the rent control laws.

Her current rent is $1,100, for a unit that would list for $5,000/month on Craigslist tomorrow morning. The fight has so far involved high-powered lawyers, undercover detectives and lots of demands for documentation, including tax returns and credit card statements, to try to determine where, exactly, Ms. Unwin “lives”.

The resources poured into this fight are a deadweight loss to everyone, as none of it goes to paying rent or building more apartments in a city so famously in need of them. The tenant, the landlord and the city all lose.

Lincoln was prescient: two years before the Cooper Union address he said, “A house divided against itself will not stand.” Because of rent control laws, New York is divided against itself, and is locked into an inferior equilibrium, destroying itself from the inside.

The Gentleman Economist once visited Venezuela, enjoying Caracas, Merida, Angel Falls, a quiet Andean village and a jungle adventure involving riverside hammocks and three days in handmade dugout canoes.

Being an OPEC country, gasoline was priced at USD 0.05/liter. It was a bad omen. Since this visit, the Bolivar has declined in value by a factor of 2,000.

The short term benefits of inflation and currency controls must still be appealing to Venezuela’s politicians, as they’ve now added a third “official” currency exchange rate – not to be confused with the actual free market rate. U.S. Dollars (required for imports, because nobody outside the country will take Bolivars) now cost 6.3, 10, or 50 Bolivars, depending upon your politically chosen industry category, while on the street they sell for 70.

With an immediate windfall of up to 11-to-1 for dollars leaking from official channels out into the street, I wonder what portion of political and business entrepreneurs’ efforts are now directed towards simply acquiring subsidized dollars.

Meanwhile, the economy is in chaos. Inflation is so bad that six years ago the “old” Bolivars were replaced at a rate of 1000-to-1 for the new “Strong” Bolivar. A sure sign your government inflated away the value of your old currency is when they roll out the new one with the word “Strong” right there in the name. Let’s just say Switzerland never did this.

Crony capitalism ensures political insiders get rich on the exchange rate while the masses suffer under inflation, shortages and propaganda. The Venezuelan people deserve better.

In the New York Times Opinion Pages Peter Dreier (Professor of Politics, Urban and Environmental Policy at Occidental College) bemoans that not every area of the U.S. is seeing the housing price increases he feels Americans deserve and he implores the government to step up and help push things along.

His argument relies on several assumptions that I think are both invalid and harmful:

Assumption #1: Rising Housing Prices Are Good for Everyone

Two-thirds of Americans own their own homes. Sure, rising housing prices benefit this group, but what about the other, poorer, third of Americans who still rent? They’re watching purchase prices rise even further out of reach. Why is he cheering on increasing unaffordability for poorer Americans?

Why should government even be in the business of trying to change market prices at all?

Assumption #2: Foreclosures Are Always Bad

Foreclosure occurs only after three things happen: First, someone hands over a property deed as collateral for a loan, explicitly agreeing that in non-payment the title can be seized. Second, the borrower fails to make the agreed payments. Third, the borrower refuses to move out and sell when it’s obvious they can’t uphold their end of the deal.

If we don’t allow lenders to enforce their contractual rights then being a borrower will become such a good deal no one will let you become one. Foreclosure may be unpleasant, but if you speculated on a house in the middle of an obvious bubble and then refuse to move out when you stop making payments, there has to be a civilized and efficient way to drag you out of it and put it back on the market to be bought by someone who will honor their obligations.

To put it more simply: If you can’t afford to make the payments on a house, you’re the wrong person for that house and you need to leave.

Delaying foreclosures means keeping the wrong people in houses, preventing the market from clearing, and it gives speculators squatter’s rights that harm investors.

Assumption #3: Banks, Not Borrowers, Are At Fault for Failing Mortgages

For most people their mortgage agreement is the largest and most important financial contract of their lives, obligating them to repay a debt greater than several years’ gross earnings. Lawyers and advisors are always available. If borrowers chose to sign without fully understanding the details, or signed anyway because they were blinded by the prospect of flipping the house for a profit within two years, they can’t apportion blame to anyone else.

If we allow home buyers to back out of a contract then by Adverse Selection (Wikipedia) only those investors who lost money will demand relief, and through Moral Hazard (Wikipedia) we’ll be encouraging the next group of borrowers to march into their escrow closing with their eyes wide shut, confident they’re getting a Heads-I-Win-Tails-You-Lose opportunity. No good can come from this.

Assumption #4: Housing Market Recovery Means Returning Prices to Near the Top of the Bubble, Not Helping the Market Clear

When people talk about “housing market recovery”, they almost always mean “housing price recovery to near the previous peak”, a level high enough to bail out everyone who gambled and lost.

What’s needed is for this market to clear and for prices to reflect the resolution of the forces of supply and demand.

Assumption #5: The Way to Help the Situation Is Through “Principle Reduction” on Underwater Mortgages

For every debt on someone’s balance sheet somebody else has an equal and opposite asset. “Principle reduction” on the debt by definition means “Asset reduction” for the investor and is really just a forced transfer from the lender to the borrower.

As soon as word of this possibility gets out, no one with an underwater mortgage will ever pay more than the minimum monthly payment, preserving their eligibility for this hand-out. Those who worked hard and made the best of a bad situation and made sacrifices to pay down their mortgages were suckers.

Assumption #6: Increased Homeownership Is Always Good for America

While its true increased home ownership strengthens neighborhoods (“nobody ever washed a rented car” and all that), there are some disadvantages. First, it reduces liquidity in the labor market as it’s more difficult to move to where the work is. Second, it supports a whole class of real estate parasites whose revenue depends upon housing turnover and massive amounts of campaign contributions and lobbying, and third, it breeds more inflation-friendly voters.

Summary

The author is so pro-homeownership he’s willing to advantage those who speculated recklessly at the top of the bubble, disadvantage renters, asymmetrically enforce contracts in favor of speculators and squatters, discourage those with underwater mortgages from paying them down, freeze the housing market until the last round’s gamblers are made whole and create a new generation begging for the addictive poison of inflation. He wants a rising tide to lift all boats, but only if lenders and renters are left standing on sinking land in rising water.

It appears Julián Castro, an up-and-coming Democratic politician, may be the next choice to lead the U.S. Department of Housing and Urban Development. He’ll manage 9,200 employees and a budget of $45 billion, which comes out to $400 per year for each of the nation’s 115 million households. I’m not sure this department even needs to exist.

First of all, what exactly does HUD do? According to this overview of their 2015 budget, which looks exactly like the sales pitch to congress you’d expect it to, essentially none of their activities needs to be done on the federal level. Isn’t housing by its very nature a local issue? And even if these programs could be devolved down to the local level, does the country really need so many forced financial transfers from taxpayers to housing consumers?

Sure, you could make an argument that housing is special, because everyone needs housing and thus we have a collective obligation to help provide it to those in need. But couldn’t we make the same argument about food, clothing, health care, education, a car, a job, internet access, telephone service, etc.? Will it be long until we add cable TV and a smartphone to this list? From this budget I suspect another thing that every American needs is access to lawyers, lobbyists and the ability to make campaign contributions so they can protect themselves against housing policy parasites.

I think the real reason HUD exists is because congress likes to consolidate power in Washington and because Crony Capitalism (Wikipedia) is more efficient if influence can be directed to a smaller, more targeted group of politicians and bureaucrats.

HUD is just one of several federal departments that I’m not sure can be justified. Others include Agriculture, Commerce, Education, Energy, Labor, Transportation, and Veterans Affairs, but don’t get me started.

If Julián Castro wants to be the most successful HUD Secretary in history, he should shut the place down, returning 9,200 employees to the productive parts of the economy and $45 billion to taxpayers every year. People could use that $400 annually to help pay for housing.

Let’s see Rent Control for what it really is: a forced subsidy from landlords to tenants, a gift from politicians to renters in return for their votes and campaign contributions. It’s the equivalent of requiring landlords to write big checks to their tenants every month with the added insult of not even being able to refuse to rent to them.

From the New York University Furman Center for Real Estate and Urban Policy we learn the median rent for a rent-regulated apartment in Manhattan in 2011 was $1,321 a month, 51% lower than the $2,696 median for market-rate units. Why should these subsidized tenants, who receive this benefit tax-free, expect to be welcomed to improvements and amenities designed to attract new market-rate occupants?

We’re now faced with whining New Yorkers (the worst kind of New Yorkers?) complaining they’re denied access to new gyms, playrooms and rooftop gardens while simultaneously refusing to pay full rent for the apartments and amenities they already receive.

Like most price controls, those who favor them are usually unable or unwilling to understand the strongest counter argument: the other party gets to make adjustments after the controls are imposed.

A forced subsidy by the landlord ruins the landlord-tenant relationship, taking it from the pursuit of win-win outcomes to coercion-based negative-sum wars of attrition. Market-rate tenants partner with their landlords for a mutually-beneficial arrangement while rent-controlled tenants merely parasitize them.

Potential landlords won’t build new housing, rents stay high, and the demand for rent control increases, locking everyone into a vicious cycle of housing market destruction, while politicians insert themselves into the relationship and collect votes and campaign contributions from both sides. Developers want to build housing, and tenants want to rent apartments; the best a politician can hope for is to be an Officious Intermeddler (Wikipedia).

So, no, you won’t get access to the new rooftop garden; your landlord sees you as a politically-favored parasite and he wants you gone.

“Waterboarding is how we baptize terrorists”This is probably a popular video on Al Jazeera

One way to describe the conflict between Islam and the West is through the lens of Samuel P. Huntington’s Clash of Civilizations (Wikipedia, original Foreign Affairs article). Being mindful of the fact that we all share just one planet, it seems those with even a limited sense of diplomacy would try to avoid pouring gasoline on an open fire.

Then there’s Sarah Palin. She throws red meat to American religious conservatives and incites ancient tribal hatreds. If she wants to criticize and dehumanize some of the world’s 1.6 million Muslims because a tiny few promote violence in the name of religion, I think she should…eh…stop promoting violence in the name of her own religion.

First we get Army General William G. Boykin saying of a Muslim, “I knew that my God was a real God and his was an idol.”, and now we have Sarah Palin threatening forced religious conversion by torture. You want to make Muslims so mad they want to kill Americans? That’s how you do it.

The Gentleman Economist has yet to be persuaded that some types of immigrants should be “illegal” while others are welcomed. How can a civilized society partition its hardworking, taxpaying, law abiding immigrants into two classes, heralding one and hunting the other?

Until the 1870’s there were essentially no immigration controls anywhere. Everyone was allowed to travel as they pleased and became a de facto citizen wherever they put down roots.

Those who would control their citizens always create a new name for the criminalization of otherwise innocent activities, such as “trafficking”, “smuggling” or “money laundering”. Hiding in the shadows means high prices and sometimes cutting corners; before you know it you might find yourself signing a $20,000 note to board a leaky vessel in Fujian, bound for better opportunities.

In 1993, one of these vessels, The Golden Venture, turned up in distress off New York City. The ensuing spectacle gripped the nation.

Prosecutors and the press needed a villain and Cheng Chui Ping, a successful Chinatown arranger of similar “undocumented” migration journeys, met the requirements. Arrested in Hong Kong in 2000, extradited to the U.S. and convicted in 2006, she died this week after spending her last days in a federal prison in Texas. Upon hearing the news, many in New York praised her kindness and success at bringing thousands to better lives in the U.S.

The Gentleman Economist knows an illegal immigrant from Brazil who got off a plane in San Francisco one morning, proceeded to the Mission District where for $50 he took advantage of while-you-wait service to acquire a California Driver’s License and immigration documents (this is America; if you’re going to be “undocumented”, there’s no reason to actually lack documents). He also picked up a cell phone and a dial-around discount card for calling Brazil. He then went to a local restaurant where he was hired on the spot and then worked an eight hour shift before catching a ride to a pre-arranged couch where he finally went to sleep. He was back at work the next day and making payroll tax contributions within the week.

Really, America? This is the kind of person you wish to drive from your shores?

If one thinks of all the places one could have been born in this world, and the place where one is living now, there’s no ethical argument for preventing free migration. These laws are fueled by xenophobic voters, nativist political parties and the politicians who pander to them.

Even the dangers of the journeys – no doubt enhanced by their illegality – don’t justify trapping industrious people behind national borders for life. It’s true that before their rescue and detention by immigration authorities, ten passengers aboard The Golden Venture drowned. But some two dozen astronauts and cosmonauts have died on their journeys-of-a-lifetime. It doesn’t mean we stop going; it means we put more resources into safety.

Here’s a temporary workaround: For those willing to give up everything, including their previous lives and all their savings, and brave a treacherous ocean journey to come to your country, from China, or Cuba, or anywhere else, haven’t they already passed the most practical and discerning citizenship test of all? They should be given immigration papers and work permits right there on the beach along with a cab ride into town; we can be confident they’ll be working tomorrow, paying taxes next week and speaking English within months. Great nations have been built by industrious risk-takers like this.

Of Amazon’s 37 U.S. fulfillment centers, six will begin offering public tours this month. I’ll bet the technology and organization would be fascinating, but one look at the tours’ home page leads me to think Amazon’s primary goal is fighting the perceptions they’re treating their packing and shipping employees poorly. The page reads like a recruitment poster for warehouse personnel, emphasizing high pay, immediate eligibility for extensive benefits, career training and a focus on workplace safety. Now that the conditions of low-wage workers have become so politicized, this is how Amazon plays the P.R. game.

We probably shouldn’t expect any changes over at Google with their famously tight data center security, where almost no one can get a tour. This is probably because Google boffins are well paid and with the exception of perhaps hard drives and RAM, every piece of computer, networking and data center kit is a custom-made trade secret.

Want an interesting and accessible tour of slightly older but no less fascinating distribution technology? Visit the San Francisco Cable Car Museum/Barn/Powerhouse. Every technology nerd I’ve sent there loves it. I wish I could put on coveralls and do an internship.

This is what San Francisco rent control has become. 24 years ago, the Reyes family moved into a studio apartment in San Francisco’s Mission District, a favorite haunt of tech employees and urban hipsters. The neighborhood is booming but rent control has kept their rent to $549 per month while the market rate is probably $2,000 or more.

By law, the landlord can neither raise the rent nor evict them so now he’s forced to offer the family a $50,000 tenant buyout just to leave. Note that this effectively means refunding all rent paid for the past 7+ years, just to reclaim an apartment he already owns, maintains and pays property taxes on.

Rent control has effectively granted the tenants a tangible property right in their landlord’s property. It’s a strange sort of Adverse Possession(Wikipedia), in which the legal owner knew of their presence all along and still couldn’t do anything about it.

Who would want to build apartments in a city like this? That’s why the cycle of high rents, rent control and housing shortages continues.

San Francisco’s housing market is expensive and dysfunctional. At least the views are nice.